Hebei Huaneng Industrial Development Company Limited v Shi
[2024] NZHC 3656
•4 December 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-000733
[2024] NZHC 3656
BETWEEN HEBEI HUANENG INDUSTRIAL DEVELOPMENT COMPANY LIMITED
PlaintiffAND
DEMING SHI
Defendant
Hearing: 18–20 and 22 November 2024 Counsel:
KH Morrison, A Manuson and N Kang for Plaintiff AAH Low and J Yu for Defendant
Judgment:
4 December 2024
JUDGMENT OF DOWNS J
This judgment was delivered by me on Wednesday, 4 December 2024 at 2 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
Solicitors/Counsel:
Meredith Connell, Auckland. Turner Hopkins, Auckland. AAH Low, Auckland.
HEBEI HUANENG INDUSTRIAL DEVELOPMENT CO LTD v SHI [2024] NZHC 3656 [4 December 2024]
The case
[1] This judgment concerns the enforcement of a judgment of a Chinese court. Unsurprisingly, key events occurred in China. The facts are straightforward, as is associated principle.
Background
[2] In 2012, Hebei Huaneng Industrial Development Company Ltd (Huaneng), agreed with Qinhuangdao Boen Trading Company Ltd (Boen) to pay the latter for the supply of coal. The companies entered a series of supplementary agreements. Under them, Huaneng made advance payments to Boen to facilitate the supply of coal. The first advance payment totalled RMB 103,426,379.28, or approximately NZD 24,000,000. Boen was obliged to repay Huaneng’s advance payment(s) on termination of its supply agreement(s) with Huaneng.
[3] Deming Shi was part of Boen’s senior management and held shares in that company. On or about 24 March 2015, Mr Shi guaranteed Boen’s obligation to repay the advance payment(s). The guarantee was expressed as being “joint and several”. Tangshan Seaport Detai New Material Technic Company Ltd (Detai), a company allegedly controlled by Mr Shi, provided a similar guarantee to Huaneng. Detai provided a security in relation to its guarantee.
[4] In 2016, the parties agreed Boen owed Huaneng RMB 43,210,000 for coal it had failed to supply, and RMB 30,000,000 concerning an additional advance payment. Boen failed to make any payment to Huaneng.
[5] In 2017, Huaneng sued Boen, Mr Shi, and Detai for payment of Boen’s debt. Huaneng filed its claim on or about 26 December 2017 in Shijiazhuang Intermediate People’s Court of Hebei Province (the Intermediate Court). Huaneng sought a total of RMB 176,636,379.28 and interest.
[6]Boen and Mr Shi defended the claim. Detai was served but did not participate.1
[7] On 3 June 2019, the Intermediate Court held Boen was required to repay what it described as coal arrears and interest to Huaneng, and Huaneng was entitled to enforce the security provided by Detai. However, the Intermediate Court dismissed Huaneng’s claim against Mr Shi on the basis his guarantee was time-barred (or had expired).
[8] Huaneng appealed to the Shijiazhuang Higher People’s Court of Hebei Province (the Higher Court). The appeal was filed on or about 24 June 2019. Mr Shi was represented by the same lawyer who appeared for him in the Intermediate Court.
[9] The Higher Court upheld Huaneng’s appeal in relation to Mr Shi. It concluded Mr Shi was liable under the guarantee to pay Huaneng RMB 103,426,379.28, the amount of the first advance payment.
[10] Huaneng sought to enforce the Higher Court’s judgment in the Intermediate Court. The Intermediate Court found Boen and Mr Shi had only modest assets: small sums in bank accounts. These were applied to Huaneng’s enforcement costs but insufficient to affect the underlying debt. On 26 March 2020, the Intermediate Court sealed an order restricting Mr Shi’s living expenses in what appears analogous to a freezing order.
[11] Huaneng later discovered Mr Shi has assets in New Zealand. Consequently, Huaneng applies to enforce, here, the Higher Court’s judgment requiring payment, by Mr Shi, of approximately NZD 24,000,000.
Mr Shi’s case
[12] Mr Shi accepts the Higher Court’s judgment meets the criteria for enforcement in New Zealand as the Higher Court had jurisdiction over the dispute; its judgment is for a definite sum; and that judgment is final and conclusive.2 However, Mr Shi contends he has a defence to the judgment’s enforcement on the basis it “was obtained
1 See [38] onward.
2 Eilenberg v Guiterrez [2017] NZCA 270, [2017] NZFLR 471.
in circumstances that constitute a breach of natural justice”. The contention reduces to two aspects:
(a)There was no hearing, as such, in the Higher Court, which was also contrary to Chinese law.
(b)Procedural and other shortcomings exist in relation to Detai, which might have compromised Mr Shi’s rights.
Principle
[13] Associated principle is straightforward, and helpfully captured by two leading texts.
[14]The authors of the Laws of New Zealand say:3
A foreign judgment will not be recognised or enforced in New Zealand if the proceedings in which it was given were contrary to New Zealand conceptions of natural justice, as for example where the defendant receives insufficient notice of the proceedings to be able to defend them, or is denied a fair opportunity to present a defence. It has been suggested that a defendant who has submitted, or agreed to submit, to the Courts of a foreign country may not later complain that steps taken in accordance with the rules of procedure of that country were contrary to natural justice. It appears, however, that the better view is that this is only one factor to be taken into account in determining whether the proceedings in the foreign Court offend against New Zealand views of substantial justice. Similarly, the fact that the objection taken by the defendant to proceedings in New Zealand was or could have been taken in the foreign country must be taken into account in determining whether there has been a substantial injustice, but is not of itself decisive.
[15] As the authors of The Conflict of Laws in New Zealand, Hook and Wass, observe:4
Natural justice requires that the judgment debtor had:
·adequate notice of the proceedings; and
·a fair opportunity of putting their case before an impartial tribunal.
3 David Goddard Laws of New Zealand Conflict of Laws: Jurisdiction and Foreign Judgments (online ed) at [75] (footnotes omitted).
4 Maria Hook and Jack Wass The Conflict of Laws in New Zealand (LexisNexis, Wellington, 2020) at [5.269]–[5.270] (footnote omitted).
Unless those standards are breached, the court does not inquire into the propriety of the foreign court’s procedures; the court is not here concerned (at least directly) with the question of whether the foreign court complied with its own procedural rules, but whether the conduct of the case met the fundamental requirements of natural justice required by New Zealand law. This allows substantial latitude to the inevitable differences in procedure between jurisdictions.
No hearing, as such
The arguments
[16] The Higher Court held what is called an inquiry, rather than a hearing. A key difference between an inquiry and a hearing is that the latter is always open to the public. On behalf of Mr Shi, Ms Low highlights this aspect as contrary to New Zealand conceptions of natural justice. Ms Low also argues the Higher Court did not follow its own law in holding an inquiry, rather than a hearing. Ms Low relies upon the evidence of Lixin Shao, who was Mr Shi’s lawyer in both the Intermediate Court and Higher Court, and Dr Leo Liao, a New Zealand-based expert in Chinese law.
[17] Mr Shao said he anticipated two possibilities when the Higher Court’s inquiry concluded: either the decision of the Intermediate Court would be upheld or the Higher Court would order a hearing for further consideration of the Intermediate Court’s decision.
[18] Dr Liao said the Higher Court “did not strictly follow” Chinese law in not holding a hearing.5 Article 169 of the Civil Procedure Act permitted that course “where there is no new fact, evidence or reason” and the Court considers a hearing “is not necessary”. Dr Liao said the case fell outside art 169 as it involved new facts, evidence, or reasons. Dr Liao said this accorded art 333 of The Supreme People’s Court Interpretation on Application of the Civil Procedure Act. An English translation was provided, which reads:
5 Dr Liao was less circumspect in cross-examination. He said the absence of a hearing constituted a “blatant violation of the law”.
Article 333
The People’s Court of Second Instance may, in accordance with Article 169 of the Civil Procedure Law, conduct a trial for the following appeal cases without opening the court:
1)Appeals against decisions to reject a case, objections to jurisdiction, or dismissal of a lawsuit;
Where an appeal lodged by an appellant is obviously unfounded;
3)Where the facts recognised in the original judgment or ruling are clear, but the applicable laws are wrong;
4)Where the original judgment has severely violated the legal procedure and requires to be remanded for retrial.
Dr Liao said none of the situations anticipated in art 333 applied.
[20] On behalf of Huaneng, Ms Morrison resists this analysis. Ms Morrison relies upon the evidence of Lin Han, the lawyer who represented Huaneng in the Higher Court, and Professor Xiaofeng Zhu, a Chinese-based legal expert.
[21]Mr Han said:
I confirm the [inquiry] was open to the public throughout. The presiding judge Jianxin Xuan listened to Huaneng Company’s claims and the defence of all defendants, including those from Mr Shi’s authorised representatives. After the [inquiry] was concluded, the judgment followed. I do not understand how there can be any dispute about the process of the appellate [inquiry]. It was conducted in an orthodox manner according to Chinese legal procedure.
[22] Professor Zhu said the Higher Court followed Chinese law. Article 169 applied because there were no new facts or reasons, and there was no new evidence. Article 333 also applied as the facts in the original judgment were clear, but the Intermediate Court erred in law; or expressed in terms of art 333, got “the applicable laws … wrong”. Therefore, a hearing was not required.
Analysis
[23] The primary question is whether what occurred violates New Zealand standards of natural justice; not whether the Higher Court followed its own law. This is apparent from the statements of principle identified earlier, and the principle of comity. The latter “is generally understood to describe [a] forum’s respect for
foreign courts, institutions or legal systems, and the exercise of authority by those entities within their legitimate spheres of operation”.6 In short, it is not for the courts of New Zealand to tell their Chinese counterparts about Chinese law, still less to determine whether they have complied with their own law. But, as Hook and Wass anticipate, some indirect commentary upon “the question of whether the foreign court complied with its own procedural rules” is difficult to avoid in this context, particularly given the contentions advanced.7
[24] Fortunately, what occurred in the Chinese courts is clear from the matrix comprising: (a) the two judgments in question, (b) the Record of Inquiry of the Higher Court, which is, essentially, a transcript prepared by that Court about what happened during its inquiry;8 (c) the Statement of Civil Appeal filed and served by Huaneng, which is akin to a hybrid notice of appeal/synopsis of argument; and (d) the Evidence List, which outlines the documentary evidence relied upon by Huaneng in the Higher Court. With all this in mind, I make eight points.
[25] First, Mr Shi defended Huaneng’s claim in the Intermediate Court on two grounds only:
(a)That his indebtedness under the “joint and several” guarantee was confined to the advance payment(s) made by Huaneng to Boen, hence RMB 103,426,379.28, not the full amount of RMB 176,636,379.28 sought by Huaneng from him, Detai, and Boen.
(b)That his guarantee had expired or was exempted because of timing.
Relatedly, the Intermediate Court recorded Mr Shi “did not submit any evidence”.
[26] Second, the Intermediate Court dismissed (a) but upheld (b). Mr Shi was liable for the full amount because he agreed “to assume unlimited joint and several liabilities for all debts of the debtor” (the quantum determination); but as Huaneng had not claimed within the (six month) guarantee period “in accordance with Article 26,
6 Maria Hook and Jack Wass, above n 4, at [1.29].
7 At [5.270].
8 Mr Shao accepted the accuracy of the Record of Inquiry.
paragraph 2 of the Guarantee Law of the People’s Republic of China”, Mr Shi was “exempted” from liability (the limitation determination).
[27] Third, Huaneng filed an apparently timely appeal to the Higher Court. Huaneng’s Statement of Civil Appeal supported the Intermediate Court’s quantum determination but contested its limitation determination. Huaneng’s argument, as apparent from its Statement of Civil Appeal, was that the correct limitation period was two years from when the debt was due, and the debt was not due until 31 December 2015. Huaneng filed its claim in the Intermediate Court (a little) before that date. Consequently, Huaneng argued the Intermediate Court “made a wrong factual determination/finding on this” aspect of the case.
[28] Fourth, in support of its argument on the limitation determination, Huaneng placed in evidence three documents created by the Intermediate Court concerning the filing and service of Huaneng’s claim in that Court. These documents were offered to prove an uncontroversial fact: the date of commencement of Huaneng’s claim in the Intermediate Court on or about 26 December 2017.
[29] Fifth, Mr Shi defended Huaneng’s claim in the Higher Court on the same two grounds as in the Intermediate Court. Mr Shi argued the quantum determination was incorrect, as his liability was confined to the advance payment(s) made by Huaneng to Boen (RMB 103,426,379.28). Conversely, Mr Shi argued the limitation determination was correct. Mr Shi added that even if the limitation period were two years from when the debt became due, the relevant date was 2 January 2018, when the Intermediate Court “formally filed the case”, and that was more than two years from when the debt became due.
[30] Sixth, the Higher Court recorded Mr Shi did not contest “the authenticity” of the guarantee to Huaneng. It follows the issues in the Higher Court were exactly those as in the Intermediate Court, albeit the arguments appear to have been slightly more sophisticated, at least on the limitation determination.
[31] Seventh, at the apparent conclusion of its inquiry, the Higher Court informed the parties its investigation was over, as was argument, subject to the receipt of additional written submissions (if any). Huaneng filed an additional submission. Mr Shi did not. Dr Liao acknowledged the High Court’s remarks could be sensibly understood as notice the case had otherwise concluded.
[32] Eighth, in what we would call a reserved judgment, the Higher Court reversed both the quantum and limitation determinations. The Higher Court accepted Mr Shi’s argument he was liable only for the advance payment(s) made by Huaneng to Boen (RMB 103,426,379.28), not the full amount of Boen’s debt. The Higher Court accepted Huaneng’s argument Mr Shi’s guarantee was not time-barred. It concluded the limitation period was two years and the debt was not due until 31 January 2016. So, time extended to 31 January 2018. Huaneng had commenced its claim (in the Intermediate Court) well before then.
[33] Against this background, I discern no violation of New Zealand standards of natural justice absent a hearing, as that term is understood in Chinese law, in the Higher Court. Unarguably, there was a hearing in that Court. Mr Shi was represented at it by the same experienced commercial lawyer who represented him in the Intermediate Court. Mr Shi had notice of what the case was about. Through his lawyer, Mr Shi was able to — and did — advance a defence. As will be apparent, one aspect of that defence succeeded. There is no suggestion of bias on the part of the Higher Court, or that Court being subject to an influence we would regard as improper.
[34] The form of hearing in the Higher Court — an inquiry — may not have been open to the public.9 I say “may” as Mr Han said the inquiry was open to the public and his evidence was not contested, but I suspect this reflects oversight in the face of remote cross-examination through an interpreter, never an easy combination for an advocate.10 But, even if the inquiry was not open to the public, there is no evidence this aspect compromised either Mr Shi’s ability to advance a defence or the Higher Court’s conduct of the case.11
9 Unlike, of course, the position in New Zealand.
10 Mr Han, Professor Zhu, Mr Shao, and Dr Liao all testified by VMR.
11 See also [51].
[35] Relatedly, I am not persuaded of any material procedural irregularity in the Higher Court not convening a hearing. The case was simple. The issues did not change. Ms Low argued the language of the Evidence List supported the contention new evidence was offered on appeal, as that term was employed. But what matters in this context is substance, not form. The three documents offered by Huaneng on appeal to prove the date of commencement of its claim in the Intermediate Court would not typically be understood as new or fresh evidence in Chinese law, a point Dr Liao acknowledged. Ms Low also argued as the Statement of Civil Appeal referred to an error or errors of fact by the Intermediate Court, new facts were engaged, requiring a hearing in terms of art 169. I disagree. Again, what matters is substance, not form; the arguments in the Higher Court were about what the facts meant, not what they were.
[36] In any event, I prefer Professor Zhu’s interpretation of arts 169 and 333. His interpretation impressed as an accurate appraisal of how these provisions are actually applied by the Chinese courts, whereas Dr Liao’s interpretation was somewhat aloof. A factual point cements this conclusion: Mr Shi never complained in China of procedural irregularity even though (a) it was in his interests to do so, and (b) he was represented by (experienced) counsel.
[37] Ms Low also argued the evidence does not disclose Huaneng made a demand of Mr Shi under the guarantee, and this proposition constitutes a natural justice complaint justiciable in this context. I respectfully disagree. The argument amounts to an attack on the merits of the Higher Court’s decision, something beyond my purview.12
Shortcomings in relation to Detai affecting Mr Shi?
[38] This aspect of the case has several interrelated limbs, best introduced by the arguments on behalf of Mr Shi.
12 In any event, Professor Zhu said a demand on a guarantor may be made by the filing of a claim in court.
[39] Ms Low contends Detai might not have been properly served under Chinese law, so doubt attaches to whether Mr Shi’s right to a retrial (in China) has expired. Her written submissions helpfully capture the point:
There is no argument that Boen and Mr Shi were served. The controversy surrounds Detai. The defendant submits, not only is it unclear Detai was served with the Judgment. It is equally unclear it ever received the appeal statement or summons. Even if Detai provided an address confirmation to the First Instance court and there is no evidence to show that it did, there is no way to know the documents were delivered to the correct address given the address on the courier mail detail form is incomplete.
Mr Han accepted that Gangxing Street is nine kilometres long and that the address on the courier mail detail forms differed to that shown for Detai on both Judgments. Without the full address, showing the location of Detai on intersecting streets, it seems unlikely the documents were taken to the correct location. There is nothing, beyond conjecture to show, that Nan Hai, named by the court in the courier mail detail form, is the person who rejected the documents. For the plaintiff to say this must be so because a preprinted form marked XXX next to preprinted words “recipient refused to accept it” means it was Nan Hai [Detai’s shareholder] who rejected the documents, is, with respect, reaching.
This court need not decide whether Detai was served. The point simply shows the plaintiff cannot be certain Mr Shi’s retrial rights have expired.
[40] Ms Low also contends Detai’s lack of participation in the court hearings leaves room for doubt as to whether Mr Shi was liable under the guarantee unless Huaneng first pursued Detai, particularly as Detai provided a security in connection with its guarantee. Ms Low adds:
The question of ordering of securities is not one that would have arisen in the Intermediate Court. First, Detai did not participate. Second, the court found Mr Shi was exempt from the guarantee. Mr Shi did not need to raise the question if he had no liability to be ordered. With respect to the Second Instance court, it is now common ground, the matter was an inquiry (not an open hearing). Had the court convened an open hearing, at which stage Mr Shi would be on notice the Intermediate People’s Court decision might be overturned, it seems likely the issue would … have been fully argued (as would the date of demand).
[41] These contentions lead to Ms Low’s submission that Mr Shi could not, realistically, have raised these points before now:
a.First, Mr Shi has been the subject of an Order for Restriction on High Expenditure in China since 26 March 2020. It seems unlikely Mr Shi has the funds to pay legal fees in China. If he did, they would have been subject to execution on enforcement.
b.Second, Mr Shi was unable to raise any objection to the execution proceeding after it was terminated on 26 March 2020.
c.Third, Mr Shi has vigorously defended this proceeding since it was first filed in or around April 2020. While his assets in New Zealand are the subject of a freezing order, he can meet his legal costs out of them.
[42]Drawing these threads together, Ms Low contends:
The defendant submits that he has had no opportunity to be heard. He has had no opportunity to present his case, or to hear the case against him (which differed to that argued at first instance. Without examining the agreements between the parties, including any oral agreement or evidence of subsequent conduct (which would be admissible in the Chinese courts), the question of ordering between the defendant and Detai cannot be discounted. There is nothing to say what happened to the collateral security that was valued before the mortgage guarantee was provided.
[43]I am unable to accept these arguments for six reasons.
[44] First, the preponderance of evidence supports the proposition Detai was (properly) served in relation to both hearings. The judgment of the Intermediate Court records just that. It says Detai “failed” to appear “after being legally summoned”, and the company “fails to submit its written defense and relevant evidence”.
[45] In relation to the Higher Court’s proceedings, service documents were offered in evidence; each a courier form bearing the stamp of the Higher Court with this note at the bottom: “This legal document has legal effect, it must be filled out truthfully, otherwise legal liability shall be pursued”. The service document in relation to the summons issued by the Higher Court (and other documents relevant to the appeal) is addressed to Nan Hai on behalf of Detai — Mr Hai is a shareholder of the company
— and appears to bear two signatures: one, presumably of the courier, and the other, presumably of the recipient. The service document contains a box identifying reasons for failed delivery, including “No such person at the address”, “Address not clear/incorrect/already moved”, “Recipient refused to accept it”. That the second signature is likely to be Mr Hai’s is supported by the fact none of the reasons for failed delivery has been ticked, particularly given the requirement the form be completed truthfully in connection with court proceedings.
[46] The service document in relation to the judgment of the Higher Court is also instructive. It is marked with what appears to be a large marker pen, saying “Returned”. Unlike the service document for the summons, this document is ticked in that part of the form identifying reasons for failed delivery, in the row, “Recipient refused to accept it”. As with the service document for the summons, this document was addressed to Nan Hai of Detai. And as with that document, it contains a box saying, “This legal document has legal effect, it must be filled out truthfully, otherwise legal liability shall be pursued”. Dr Liao accepted service is effective in China if a recipient refuses service.
[47] Proof of service on this evidence is not conjecture. It involves no more than drawing an inference from the face of business records of evident importance to the operation of the Chinese courts.
[48] Second, and perhaps more importantly, none of the alleged impediments identified by Ms Low prevented Mr Shi from raising service as an issue in the Intermediate Court, Higher Court, or both, had he considered it relevant to his interests. To avoid doubt, the “Order for Restriction on High Expenditure” referred to by Ms Low — what I referred to earlier as akin to a freezing order — was made after the hearings in the Intermediate Court and Higher Court.
[49] Third, Professor Zhu and Dr Liao agreed Mr Shi’s “joint and several” guarantee did not require Huaneng to first pursue Detai, albeit Dr Liao was somewhat circumspect on this point. But Dr Liao did accept the concept of joint and several liability in Chinese law is similar to that in New Zealand.
[50] Fourth, as with service upon Detai, Mr Shi did not raise a priority argument in either the Intermediate Court or Higher Court. Mr Shao, Mr Shi’s lawyer, accepted as much in evidence. None of the alleged impediments identified by Ms Low prevented Mr Shi from doing so (through Mr Shao), had he wished to. That he did not is telling, as it was in Mr Shi’s interests to do so if priority afforded a defence to Huaneng’s claim against him. Unsurprisingly, Mr Shao accepted in cross-examination the approach in both courts was to safeguard or protect Mr Shi’s interests.
[51] Fifth, the submission Mr Shi might have raised these issues had there been an open hearing in China suffers an elementary flaw. Mr Shi did not testify in this Court.13 So, there is no evidence about the effect, if any, of the absence of an open hearing upon him. Mr Shi, of course, bears the onus of proof in relation to the defence(s) he advances. It is not open to him to discharge that onus by “testifying” through counsel.
[52] Sixth, and most importantly, Ms Low’s arguments in connection with Detai are not really natural justice complaints at all. Rather, they are camouflaged attacks on the merits of the Higher Court’s decision that ultimately reduce to one proposition: that the Higher Court was wrong in fact, law, or both, to find Mr Shi liable to Huaneng under the guarantee in relation to the advance payment(s) by it to Boen. That issue was for the Chinese courts, not those here.
Conclusion
[53] The judgment of the Higher Court meets the (common law) criteria for enforcement in New Zealand and was not obtained in circumstances constituting a breach of natural justice.
Result
[54]Huaneng’s claim is upheld.
[55]Mr Shi is liable to Huaneng for:
(a) RMB 103,426,379.28.
(b)Interest on (a) under s 10 of the Interest on Money Claims Act 2016 from 25 May 2020.
13 Other than as to his financial means in connection with an application by Huaneng for a New Zealand-based freezing order.
Costs
[56] Huaneng is presumptively entitled to costs. If costs are not agreed, the parties may file memoranda of not more than seven pages each:
(a)Huaneng on or before Friday, 7 February 2025.
(b)Mr Shi on or before Friday, 21 February 2025.
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Downs J
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